Japan's Daikin eyes Goodman Global; deal could cost $4 bln

OSAKA, Japan Fri Jan 14, 2011 2:09pm IST

Related Topics

OSAKA, Japan (Reuters) - Japanese air-conditioner maker Daikin Industries is considering buying U.S. rival Goodman Global among other acquisition targets, the company's CEO said, in what could be a $4 billion deal.

San Francisco-based private equity firm Hellman & Friedman has put Goodman on the auction block and contacted a number of potential bidders, including Daikin, a source familiar with the matter told Reuters last month.

Noriyuki Inoue, chief executive of the world's second-largest air-conditioner maker, confirmed on Friday that Daikin had been approached about Goodman and said the company would have to weigh the potential merits of a transaction.

He stressed they were not in negotiations and were also looking at several other deals.

"We want to make tie-ups, joint ventures and acquisitions an everyday part of achieving our objectives," Inoue told reporters. "We are considering buy-outs of several companies at the moment."

One strategy would be to buy shares in Goodman after any future stock market listing, Inoue added, although Goodman Global withdrew a registration in November last year for an initial public offering.

If Daikin were to buy Goodman, it would make the Japanese firm the market leader in air-conditioners, surpassing United Technologies Corp unit Carrier, and help to strengthen its customer base outside the saturated Japanese market.

Lack of growth at home and the strength of the yen have spurred Japanese firms' outbound acquisitions, which nearly doubled last year to $38.5 billion, according to Thomson Reuters data.

Inoue said Daikin was set to achieve the top spot in air conditioning sales soon, even without the takeover, thanks to past mergers and gains in growth markets.

Referring to financing for the potential deal, he said it was important to avoid diluting share value. News of Daikin's interest last month sparked a fall in its share price, reflecting investor concerns it might issue stock to pay for the acquisition.

Inoue's comments on Friday helped push Daikin's shares down 2.3 percent to 2,891 yen, underperforming a 0.9 percent fall in the Nikkei average.

But some investors see Goodman as an opportunity for Daikin to accelerate its overseas growth.

"Daikin is in the right direction if it is considering buying Goodman. Daikin will have to expand overseas and an acquisition will be necessary," said Kazuyuki Murai, chief investment officer at Plaza Asset Management, which owns Daikin shares.

"If Daikin sells new shares, the stock price may fall. But Daikin's valuation is higher than most major companies in Japan, so a short term dent in the stock price is acceptable."

Some analysts have argued that Daikin, which has flagged its ambition to become the biggest player in the heating, ventilation and air-conditioning sector (HVAC), would be better off pursuing opportunities in emerging markets, where growth prospects are higher.

Hellman & Friedman paid $1.8 billion in cash, including $1.1 billion of its own capital, for the company in October 2007. The transaction also included assumed debt and other financing for a total of $2.65 billion. It stands to make almost four times its original investment if it sells Goodman for more than $4 billion.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Earnings Season

Earnings Season

Reliance Q4 sales rise, refining margin narrows.  Read 

Innovative Solution

Innovative Solution

Turning smog into jewels - a Dutch designer's solution to Beijing's pollution.  Video 

Insider Trading

Insider Trading

Rajaratnam's brother loses bid to dismiss insider trading charges.  Full Article 

Literary Giant Dies

Literary Giant Dies

Mourning and memories in Gabriel Garcia Marquez's languid hometown.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage